Mortgage stress level at its highest since 2018

Mortgage stress levels among Australian borrowers continued to rise in the three months to October 2022, with over 1.01 million or 22.6% of mortgage holders “at risk”.

According to the latest Roy Morgan research, two 50bps rate increases and a 25bps hike happened during the third quarter of the year, which could be a major reason why mortgage stress levels increased.

Roy Morgan CEO Michele Levine said the mortgage stress levels in the quarter were the highest since April 2018.               

“October marks the first time since September 2018 that over one million Australian mortgage holders have been considered ‘at risk’,” she said.

Even so, with just over one-in-five mortgage holders considered “at risk”, the level of mortgage stress is still below the long-term average over the last 15 years of 22.8% of mortgage holders considered “at risk”.

Furthermore, the current level is still below the high reached during the Global Financial Crisis, when stress levels hit 35.6% or equivalent to 1.5 million borrowers.

Taking into consideration the likely rate hikes in the following months, the report expects the mortgage stress levels to go over 25% by January 2023, which would put one in four borrowers “at risk”.

“It’s important to consider that interest rates are but one variable that determines whether a mortgage holder is considered ‘at risk’, Ms Levine said.

“The variable that has the largest impact on whether a borrower falls into the ‘at risk’ category is related to household income – which is directly related to employment.”

Ms Levine said as long as employment levels remain strong, the number of “at risk” borrowers will not increase to anywhere near the levels experienced during the GFC.

“The latest Roy Morgan employment estimates show a near-record 13.5 million Australians were employed in October 2022, up by around 600,000 since February 2020 when there were 12.9 million employed pre-pandemic,” she said.

“The strong growth in the jobs market has attracted more Australians into the labour force and there are now over 1.36 million unemployed Australians (9.2% of the workforce) compared to 1.17 million pre-pandemic.”

A separate study from NAB found that around one in three Australian home loan borrowers suffered some kind of financial hardship over the past three months.

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Photo by Karolina Grabowska from Pexels.